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Mega-Merger in Mining Industry

It has been recently announced that Freeport-McMoRan Copper and Gold will acquire Phelps Dodge, the second-largest copper producer in the world, for $25.9 billion in cash and stock, creating the largest copper producer in the world as well as the largest mining company in North America. The boards of both companies have approved the deal granting Phelps Dodge stockholders $88 and 0.67of a Freeport-McMoRan`s share per share, representing approximately a 33% premium over the companies` closing stock prices Friday.

In order to fund the merger Freeport-McMoRan, which has a market capitalization value of $11.3 billion, will borrow around $7.5 billion to acquire Phelps Dodge, who`s market capitalization value is estimated at $19.4 billion. Richard C. Adkerson, Freeport`s president and chief executive officer explained the need for merger saying: ?We have been watching the industry consolidation, fewer companies, larger companies, but we had not been playing a role in it,? he added ?Now Freeport is a larger company that has a larger platform.?

The merger will also diversify Freeport-McMoRan`s assets as Phelps Dodge owns mines in Africa, Central and South America and the United States while Freeport-McMoRan only operates a large mine in Indonesia. This mine has drawn quite a bit of fire lately as riots directed at the company broke out in the Indonesian province of Papua. It has been reported that the company subsequently increased funding for local police and army including personal grants of thousands of dollars to some commanders. The company has also received some bad press regarding the company`s environmental practices.